Platinum sees Logic Works acquisition boosting earnings

BrenonDaly

OAKBROOK, Ill. (CBS.MW) -- Platinum Technology said Monday its $174 million acquisition of Logic Works will add to its earnings immediately after the deal closes this summer.

Mike Cullinane, Platinum Technology's chief financial officer, told CBS MarketWatch that Logic Works (LGWX)
lgwx
will add $60 million to $62 million in revenue for 1998, while increasing earnings by $8 million to $9 million. That will more than offset the dilution from the 8.03 million shares the Oakbrook, Ill.-based company is issuing for its smaller rival.

Platinum Technology (PLAT)
PLAT, +0.59%
makes software that allows users to build and manage all kinds of applications. In acquiring Logic Works, the company gets products that help manage databases. Logic Works shares dipped 3/16 to 13 3/8 while Platinum fell 1 3/4 to 24 13/16.

Cullinane said the product addition will also help the company distance itself from the second-largest player in the space, Rational (RATL)
ratl
. Shares in that company currently trade at less than half their 52-week high, as concern over competition from Oracle (ORCL)
ORCL, +0.21%
and several securities fraud suits have chilled investors.

"Once they get their internal issues resolved, they'll be a formidable competitor," Cullinane said. But analysts don't immediately expect that.

Year 2000 business

Damian Rinaldi, at First Albany Corp., rates Rational a "neutral". Platinum Technology also has an advantage over Rational because Platinum offers a way for companies to fix Year 2000 software glitches, Rinaldi said.

Because most software doesn't include the first two numbers of a year in a datefield, many computers will misinterpret the change of the millennium and read "1900" instead of "2000." Many businesses have begun shifting software spending to address this problem, which hurt Rational but may help Platinum, which has a Year 2000 software tool. Monday's decline in Logic Works shares comes after they shot up 20 percent on volume that was 12 times heavier than average on Friday, one session before the announcement.

"We didn't leak anything," Cullinane said. "We've done a lot of deals like this in the past and we haven't seen a run-up like that."

Any inside information "didn't come from here", said Logic Works spokesman Ken Zeng.

Big premium

Platinum will pay the equivalent of about $15.375 per share for Logic Works, which is about 3 points above the 52-week high for the company's shares prior to last week's surge. The deal values Logic Works at about $174 million.

Cullinane attributed the decline in Platinum Technology shares to the fact that the Logic Works deal is the third acquisition that is expected to close in the second quarter. "There might be some perceived increase in risk among some shareholders."

But he noted the acquisitions of LBMS and Mastering are "on track" to add a combined $80-$87 million in revenue for the current year.

First Albany's Rinaldi said Platinum Technology's acquisitions "all strengthen the company in areas it needs to be strengthened." With about 60 purchases over the past few years, Platinum Technology also knows how to manage and improve operations at companies it acquires, Rinaldi said.

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